In the first of a short series of articles, Outside Spy looks at the current taxation landscape and the potential advantages of working on contracts deemed to be Outside IR35
How does it pay to be Outside IR35?
Essentially, the IR35 legislation was constructed to capture those deemed to be “disguised employees” rather than genuine contractors assessed to be operating in business of their own account. This means that by operating outside IR35, contractors have access to the business tax regime applicable to limited companies, rather than the personal/employee tax regime that applies to inside IR35 contracts.
The business tax regime has been constructed to provide incentives for those willing to take the financial risk of operating a business. We have identified 12 potential benefits that are open to you if you work on Outside IR35 contracts and operate your own business;
Paying yourself as a director of your own company – If you work as a contractor through a limited company you pay corporation tax at 19 per cent on your profits, can claim allowable business costs against your tax bill, and can avoid some National Insurance Contributions (NIC) by paying yourself via dividends. As a result, working as a contractor is often more tax efficient than working via an umbrella company or as an employee of a company.
Allowing for periods of lower revenue – retaining profits in your company in the good times, to provide a smoothed income in leaner periods. ie you can elect not to take all your contract income as salary in the year that it was earned, so paying less tax than you would as an employee under PAYE
Investing in your company’s services– you can invest in training and certification, subscribing to information services, news portals, or premium content, and attending industry events, thus keeping your skills up to date, being aware of opportunities in the marketplace, and developing the services you offer clients.
Operating as a business capable of securing small public sector contracts –getting on government-approved supplier lists such as the Government’s Digital Marketplace for Cloud hosting, software and support.
Investing in technology – purchasing hardware, software and tools, which can be used to provide development environments and produce productivity gains
Investing in your own projects – you can create training courses, demonstration software or apps with an eye to future opportunities
Building your company & brand – investing in your own website, marketing materials, building a social media presence, producing promotional/explainer videos etc in order to promote your business expertise and help secure further work
Employing others in the service of your business – this could cover employment of a spouse or children to assist with administrative or development work
Taking on larger pieces of work – possibly by subcontracting to others, or collaborating with others on projects
Using company profits to invest in other areas – say by investing in buy to let properties, or stocks and shares or cryptocurrency
Providing benefits for yourself – by making provision for life insurance, health insurance, etc
Accessing business finance – taking out loans or overdrafts to fund your growth
As you can see, there are numerous reasons why the contractor should seek opportunities which are deemed to be “Outside IR35”.
Outside Spy specialises in finding and distributing all the IT Contracts that have been assessed and advertised as being “Outside IR35”, in one easy to navigate database. Non-subscribers can find a selection of roles on our website, whilst subscribers have full access to the database and unlimited email alerts, for a small monthly fee. Join Outside Spy
We have created this content for general information purposes and it should not be taken as specific advice; always take professional advice.